Credit policy is measured and balanced, says Chidambaram

The finance minister P Chidambaram has termed the credit policy “measured and balanced�, which will not hamper growth and investment while seeking to dampen inflationary potential in the economy.

Welcoming the policy Mr Chidambaram said, “The policy seems to be a balanced response to the changed condition considering deficient monsoon and the rise in the oil prices globally.� With RBI’s policy announcement, the investment growth momentum will continue.

Speaking about investment and credit offtake, the FM said, “Non-food credit has more than doubled to Rs 92,000 crore from Rs 44,000 crore. This is a good sign. The incremental credit-deposit ratio also stands at 96%.� Mr Chidambaram was speaking to reporters here after the credit policy announcement by RBI governor YV Reddy.

He called the repo rate increase from 4.5% to 4.75% as a marginal adjustment and said the government is happy with the stance. “RBI thinks that there is excess liquidity in the system that needs to be sucked out and hence the repo-rate increase. The hike will help in reining inflation, “ Mr Chidambaram explained.

Commenting on the cost of government borrowings, Mr Chidambaram said the hike might put pressure on the yields of the government securities and push up the Centre’s cost of borrowing marginally.

However he added, “We have to borrow and will continue to borrow. The repo rate increase will not affect the government borrowings.�

“I am very happy with RBI’s projections and policy stance. I think this is a measured and balanced approach to the situation. By and large, it is a very good policy,� said Mr Chidambaram.

On the pegging down of economic growth projection, Mr Chidambaram said, “If monsoons are deficient by 13% and global oil prices at $56 a barrel, one would not have to be extremely optimistic that this will not have an impact on growth rate.

� Asked about RBI’s lowering of GDP projection, he said, “I am a realist. In the beginning of the year, the Met department had projected 102% monsoon but it turned out to be 87%. We have no quarrel over the projections. We have to live with that,� he said.